The Challenges of Infrastructure Privatisation

Privatisierung, Infrastruktur, Deregulierung, Politische Reform, Privatization, Public infrastructure, Deregulation, Political reform

Sunk costs, market contestability, and the size distribution of firms

This paper offers a new economic explanation for the observed inter-industry differences in the size distribution of firms. The empirical estimates--based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit United States manufacturing industries--indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum.Markets and Market Access,Economic Theory&Research,Water and Industry,Access to Markets,Debt Markets

The pricing dynamics of utilities with underdeveloped networks

This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility's optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries.Economic Theory&Research,Markets and Market Access,Urban Water Supply and Sanitation,Infrastructure Regulation,Access to Markets

Restructuring regulation of the rail industry for the public interest

Throughout the world, the rail industry historically has been one of the most extensively regulated of all sectors. Price, entry, exit, financial structure, accounting methods, vertical relations, and operating rules have all been subject to some form of government control. The public utility paradigm of government regulation has been applied on the assumption that the economic characteristics of the rail industry preclude competitive organization or the need for market responsiveness. In the past three decades, however, policymakers and economists have become increasingly critical of traditional regulation of the rail industry. It is generally accepted that in markets where rail carriers seek to meet demand, there is often effective competition, and that government restrictions on the structure and conduct of firms in this industry impose considerable costs on society. Misguided regulatory policies have been blamed for the misallocation of freight traffic among competing modes of transport, excess capacity, excessive operating costs, and poor investment decisions. Regulatory controls have also shouldered much of the blame for the poor financial condition of railroads, the deterioration of rail plant, the suppression and delay of cost-reducing innovations, and the mediocre quality of rail service. The authors suggest principles for restructuring railroad regulation - indeed, for restructuring the orientation of railroad entries - for the sake of public interest. Much can be learned, they contend, from applying the principles of industrial organization to analysis of the rail industry. To assess the implications of policies aimed at rate regulation or infrastructure, it is essential to understand the nature of technology, costs, and demand in the rail industry. Government's role in relation to market behavior should be based explicitly on the economic and technological realities of the railroad marketplace. The authors say that restructuring along the lines they suggest - putting more emphasis on marketing effectiveness - will result in a more profitable railway with a better chance of covering its costs for commercial services. Changing the basis for noncommercial services as they suggest will make those services more effective at fulfilling public policy objectives, will eliminate an insuperable drain on revenues that condemns rails to inadequate investment, and will eliminate cross-subsidies that make it difficult for rails to compete against other modes of transport.Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Decentralization,Enterprise Development&Reform,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Access to Markets

Towards a Sustainable Global Energy Supply Infrastructure: Net Energy Balance and Density Considerations

This paper employs a framework of dynamic energy analysis to model the growth potential of alternative electricity supply infrastructures as constrained by innate physical energy balance and dynamic response limits. Coal- red generation meets the criteria of longevity (abundance of energy source) and scalability (ability to expand to the multi-terawatt level) which are critical for a sustainable energy supply chain, but carries a very heavy carbon footprint. Renewables and nuclear power, on the other hand, meet both the longevity and environmental friendliness criteria. However, due to their substantially di¤erent energy densities and load factors, they vary in terms of their ability to deliver net excess energy and attain the scale needed for meeting the huge global energy demand. The low power density of renewable energy extraction and the intermittency of renewable ows limit their ability to achieve high rates of indigenous infrastructure growth. A signi cant global nuclear power deployment, on the other hand, could engender serious risks related to proliferation, safety, and waste disposal. Unlike renewable sources of energy, nuclear power is an unforgiving technology because human lapses and errors can have ecological and social impacts that are catastrophic and irreversible. Thus, the transition to a low carbon economy is likely to prove much more challenging than early optimists have claimed.dynamic energy analysis; alternative electricity supply; coal; nuclear energy

Current and forthcoming issues in the South African electricity sector

One of the contentious issues in electricity reform is whether there are significant gains from restructuring systems that are moderately well run. South Africa's electricity system is a case in point. The sector's state-owned utility, Eskom, has been generating some of the lowest-priced electricity in the world, has largely achieved revenue adequacy, and has financed the bulk of the government's ambitious electrification program. Moreover, the key technical performance indicators of Eskom's generation plants have reached world-class levels. Yet the sector is confronted today with serious challenges. South Africa's electricity system is currently facing a tight demand/supply balance, and the distribution segment of the industry is in serious financial trouble. This paper provides a careful diagnostic assessment of the industry and identifies a range of policy and restructuring options to improve its performance. It suggests removing distribution from municipal control and privatizing it, calls for vertical and horizontal unbundling, and argues that the cost-benefit analysis of different structural options should focus on investment incentives and not just current operating efficiency.Energy Production and Transportation,Electric Power,Environment and Energy Efficiency,Energy and Environment,Infrastructure Economics

Toward a sustainable global energy supply infrastructure : net energy balance and density considerations

This paper complements previous work on the economics of different energy resources by examining the growth potential of alternative electricity supply infrastructures as constrained by innate physical limits. Coal-fired generation meets the criteria of longevity (abundance of energy source) and scalability (effective capability to expand to the multi-terawatt level) which are critical for a sustainable energy supply chain, but it carries a very heavy carbon footprint. Renewables and nuclear power meet both the longevity and climate friendliness criteria. However, they vary in terms of their ability to deliver net energy at a scale needed for meeting a huge global energy demand. The low density of renewable resources for electricity generation and the current intermittency of many renewables limit their ability to achieve high rates of growth. And a significant global increase in nuclear power deployment could engender serious risks related to proliferation, safety, and waste disposal. Unlike renewable sources of energy, nuclear power is an unforgiving technology because human lapses and errors can have ecological and social impacts that are catastrophic and irreversible. The transition to a low carbon economy is likely to prove much more challenging than some optimists have claimed.Energy Production and Transportation,Climate Change Mitigation and Green House Gases,Energy and Environment,Environment and Energy Efficiency,Energy Demand

Toward defining and measuring the affordability of public utility services

This paper reviews the progress made in the literature toward defining and measuring the affordability of utilities. It highlights the relative merits of alternate affordability metrics; the practical challenges to their operationalization, including the underlying data requirements; and their implications for the design, evaluation, and implementation of appropriate affordability programs.Access to Finance,Economic Theory&Research,Town Water Supply and Sanitation,Public Sector Economics&Finance,Rural Poverty Reduction

Infrastructure Regulation: Promises, Perils and Principles

For much of the 20th century and in most countries, network utilities, such as telecommunications, electricity, natural gas, railroads, and water supply, were vertically and horizontally integrated state monopolies under ministerial control. This approach often led to extremely weak infrastructure services, especially in developing and transition economies. Common problems included low productivity, high costs, poor quality, chronic revenue shortages and falling investments, long waits for and shortages of services, and nonpayment for and theft of services. As a result of these problems, public policies toward infrastructure have undergone profound changes over the past two decades. This report evaluates the privatization of network utilities in developing and transition economies using three criteria: the resulting levels of investment (and thus service expansion), operating (technical) efficiency, and allocative efficiency (as indicated by the rebalancing of tariffs). This report also assesses the distributional consequences of reforms, especially their effects on basic services for poor households and other disadvantaged groups. The report suggests designing pricing policies that strike a balance between economic efficiency and social equity, developing rules governing access to bottleneck infrastructure facilities, and finding new ways to increase poor people's access to services.Regulatory Reform, Other Topics

Competition and innovation-driven inclusive growth

The paper investigates the strength of innovation-driven employment growth, the role of competition in stimulating and facilitating it, and whether it is inclusive. In a sample of more than 26,000 manufacturing establishments across 71 countries (both OECD and developing), the authors find that firms that innovate in products or processes, or that have attained higher total factor productivity, exhibit higher employment growth than non-innovative firms. The strength of firms'innovation-driven employment growth is significantly positively associated with the share of the firms'workforce that is unskilled, debunking the conventional wisdom that innovation-driven growth is not inclusive in that it is focused on jobs characterized by higher levels of qualification. They also find that young firms have higher propensities for product or process innovation in countries with better Doing Business ranks (both overall and ranks for constituent components focused on credit availability and property registration). Firms generally innovate more and show greater employment growth if they are exposed to more information (through internet use and membership in business organizations) and are exporters. The empirical results support the policy propositions that innovation is a powerful driver of employment growth, that innovation-driven growth is inclusive in its creation of unskilled jobs, and that the underlying innovations are fostered by a pro-competitive business environment providing ready access to information, financing, export opportunities, and other essential business services that facilitate the entry and expansion of young firms.Environmental Economics&Policies,Labor Policies,Labor Markets,E-Business,Microfinance